Correlation Between Central Garden and Simply Good

Can any of the company-specific risk be diversified away by investing in both Central Garden and Simply Good at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Central Garden and Simply Good into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Central Garden Pet and Simply Good Foods, you can compare the effects of market volatilities on Central Garden and Simply Good and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Central Garden with a short position of Simply Good. Check out your portfolio center. Please also check ongoing floating volatility patterns of Central Garden and Simply Good.

Diversification Opportunities for Central Garden and Simply Good

0.74

Correlation Coefficient

Central Garden  Simply Good

Poor diversification

The 3 months correlation between Central and Simply is 0.74. Overlapping area represents the amount of risk that can be diversified away by holding Central Garden Pet and Simply Good Foods in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Simply Good Foods and Central Garden is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Central Garden Pet are associated (or correlated) with Simply Good. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Simply Good Foods has no effect on the direction of Central Garden i.e., Central Garden and Simply Good go up and down completely randomly.

Pair Corralation between Central Garden and Simply Good

Assuming the 90 days horizon Central Garden Pet is expected to generate 1.17 times more return on investment than Simply Good. However, Central Garden is 1.17 times more volatile than Simply Good Foods. It trades about -0.05 of its potential returns per unit of risk. Simply Good Foods is currently generating about -0.06 per unit of risk. If you would invest  3,379  in Central Garden Pet on November 28, 2024 and sell it today you would lose (235.00) from holding Central Garden Pet or give up 6.95% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Central Garden Pet  vs.  Simply Good Foods

Central Garden Pet

Risk-Adjusted Performance

Very Weak

Over the last 90 days Central Garden Pet has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Central Garden is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Simply Good Foods

Risk-Adjusted Performance

Very Weak

Over the last 90 days Simply Good Foods has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest uncertain performance, the Stock's basic indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.

Pair Trading with Central Garden and Simply Good

The main advantage of trading using opposite Central Garden and Simply Good positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Central Garden position performs unexpectedly, Simply Good can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Simply Good will offset losses from the drop in Simply Good's long position.

The idea behind Central Garden Pet and Simply Good Foods pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Fundamentals Comparison module to compare fundamentals across multiple equities to find investing opportunities.